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US equities continue to dominate investment theme

There is no denying 2013 has been the year for equity investors. As investors focus on the S&P 500’s 26% year-to-date performance or the Nikkei’s 51%, the less known primary indices such as the Venezuela’s Caracas stock index returned a whopping 447%, followed by Dubai with 85%, this year.

These equity indices have a minuscule market cap compared to the US, but their strong performances have increased their percentage in the world market share – Venezuela increased by 62% and Dubai grew by 37%. However, the US continues to dominate the total world market cap with 35%, which was boosted by their 11%, this year.

As we inch closer to the end of the year, the Santa rally might still happen. There is a number of increasing conflicting reports coming out as the equity markets pare off some of its rallies.

BofA Merrill Lynch tracking institutional clients says, they are selling out of their US equity positions for the second week, while another shows fund flows into equity mutual funds have not been robust, this indicates the bull market still has some legs. One thing is clear though, for investors to benefit from the markets – is to stay invested. The buying-in or selling-out is just an exercise needed to rebalance their portfolios.

From a global macro perspective, US equities continue to outperform all asset classes. This leaves the underperforming asset classes this year to be everything else, such as commodities including gold, bonds and emerging market stocks. Looking at these investments from a longer-time period, it shows that there are certain instances where underperformers shine. So, investors who are looking to move away from the high-beta plays are likely to shift towards the low-beta value and not necessarily in a hurry to increase their positions in underperformers, unless the investment theme changes drastically.

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